Kysar: On the Constitutionality of Tax Treaties

Taxes kindled the American Revolution. Revolt against collecting revenues without representation caused a tea party, propelling the colonies towards convening the First Continental Congress. Forgotten, though, is the role of taxes in shaping our fledgling nation immediately after the Revolution. Control over which governmental body could impose taxes inflamed the delegates to the Constitutional Convention. So important was the issue that the decision to originate revenue bills in the lower house of Congress constituted a cornerstone of the Great Compromise, thus birthing the representational structure of our country. This principle became embodied in the Constitution as the Origination Clause, ensuring that the power to tax would begin with the house that was directly elected and proportionate to the population.

Tax treaties (generally, bilateral instruments that mitigate or eliminate double taxation of income across jurisdictions) upset the intra-congressional balance that was carefully constructed by the Framers. Because tax treaties are generally considered to be self-executing, meaning that they need no implementing legislation to take legal effect, the ratification of a tax treaty cuts the House of Representatives wholly out of the process of lawmaking in the area of taxation. This outcome, I argue, lies in derogation of the Origination Clause and also runs counter to the important policies embodied in the Clause, such as the involvement of the proportionally represented house and the reduction of special interest deals. Contrary to current treatment, substantial constitutional and policy considerations mandate that tax treaties be implemented through legislation passed by both houses of Congress. Abiding by this condition has the practical effect of significantly reducing statutory overrides of tax treaties, a phenomenon partially resulting from the House’s jealous, albeit well-founded, guardianship over tax matters. My prescription thus allows our nation not only to honor our Constitution but also to better uphold our obligations under international law, creating more certainty for public and private actors. Additionally, this analysis makes important contributions beyond the context of tax treaties by shedding light on the vexing question of whether and when the Constitution limits the reach of treaties.